By 2030, the majority of traditional financial firms will have missed the opportunities offered by digital transformation. 80% of today’s firms will cease to exist by then.
Digital competitors of Financial Services businesses require fewer physical assets to establish and run their operations. New fintech companies can change, add or delete features and services at a much faster pace compared to traditional financial services organizations. Legacy systems used by traditional financial services firm cost more to run and are less flexible. Changing regulations and competing with new entrants require agility and ability to integrate with other systems.
The current pandemic and economic challenges have accelerated the journey towards digitization and acquiring digital capabilities are most important. Established financial services providers will have to build digital platforms or find niche products and services to sell on other platforms.
The first thing that financial services companies need to do is to acknowledge the digital deficit their companies have. As per a Garner survey, 70% of Financial Services CEOs believe their organizations can compete in the digital world without changing their existing business model. As startup fintech firms start scaling up in the next few years and their margins start improving, it will become difficult for traditional companies to survive.
Current legacy technologies do not provide the openness required to encourage collaboration internally and externally. These technologies create friction between the business and its partners and customers. Companies must design an API mediation layer to support and integrate customers, external platforms, IT systems, Things (IoT devices) and Analytical needs of the organization. A product approach to API development will ensure APIs are designed with consumers in mind by continually monitoring and enhancing APIs to optimize the consumer experience.
Financial Services companies must explore moving to a digital technology platform that can help them provide highly differentiated and personalized services to their customers, analyze data to deliver customized pricing, marketing, engagement and engage with customers cross channels to provide them with an enhanced and consistent experience.
Customers have high expectations about how they want to interact with you and expect a similar experience across channels. Before the rise of social media and mobile technologies, a customer journey would be influenced by a standard set of media and traditional channels — for example, TV versus web, in-store versus online. Today, a customer’s journey is more complex, as the number of media and digital touchpoints has increased dramatically.
Deploying a digital business platform or building a wrapper of response apps around legacy applications will not help if internal operations and processes do not keep up with the change. It is essential to look at Digital Business holistically covering the vision, strategy, customer experience, culture, product/service design, analytics, innovation, business model agility, digital leadership skills and an agile and secure digital workplace. The CIO of a leading bank we met recently, noted that the bank had invested heavily in digitizing channels but are grappling with internal process inefficiencies which prevented them from getting returns on the investments.
The next few years are going to be increasingly difficult for traditional financial services firms and they will have to move faster on digital business. We will see many of them fold up in the times to come. Kanoo Elite is a Digital Transformation service provider and advises Financial services firms about Digital Business.